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entitled 'Small Business Administration: Progress Made, but
Transformation Could Benefit from Practices Emphasizing Transparency
and Communication' which was released on December 01, 2003.
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Report to Congressional Requesters:
October 2003:
SMALL BUSINESS ADMINISTRATION:
Progress Made, but Transformation Could Benefit from Practices
Emphasizing Transparency and Communication:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-76] GAO-04-76:
GAO Highlights:
Highlights of GAO-04-76, a report to congressional requesters
Why GAO Did This Study:
The Small Business Administration (SBA) has recognized that it needs
to realign its current organizational structure and processes to
improve its ability to fulfill its primary mission—supporting the
nation’s small businesses. In July 2002, SBA announced that it was
initiating a transformation effort to increase the public’s awareness
of SBA’s services and products and make its processes more efficient.
GAO evaluated SBA’s progress in implementing its transformation
initiatives and challenges that have impeded or could impede
implementation and whether SBA’s transformation incorporates practices
GAO has identified in previous work that are important to successful
organizational change.
What GAO Found:
SBA has made some progress in transforming its organization, although
efforts could be impeded by budgetary and staffing challenges. SBA
started three district office pilots to test marketing and outreach
techniques and two pilots to centralize loan processes. However, SBA
officials told us that their plans for expanding the pilots and
implementing additional initiatives have changed because the agency
did not receive any funding for transformation in fiscal year 2003 and
may not receive any in fiscal year 2004. GAO found that SBA did not
provide consistent, clear budget requests with a detailed plan for
transformation results. The challenge of staffing its centralization
initiatives, including relocating employees and avoiding undue
disruptions to operations, could further complicate SBA’s progress.
When SBA initially planned and began implementing transformation, it
gave some attention to practices important to successful
organizational change. SBA drafted a plan and created an
implementation team to manage the transformation. However, significant
weaknesses in implementation could impede further progress and
exacerbate the challenges noted above. The transformation could fail
if practices and implementation steps focusing on transparency and
communication are not given more attention.
What GAO Recommends:
SBA should (1) ensure that implementation leadership is clearly
identified to employees and stakeholders, (2) finalize its
transformation plan and share it with employees and stakeholders, (3)
develop performance goals, (4) use the performance management system
to define responsibility, (5) develop a communication strategy that
promotes two-way communication, and (6) solicit ideas of employees and
the union and ensure that their concerns are considered. SBA said it
would consider our recommendations but disagreed with some of our
findings related to its budget requests and employee communication and
involvement.
www.gao.gov/cgi-bin/getrpt?GAO-04-76.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Davi D'Agostino at
(202) 512-8678 or d'agostinod@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
SBA Has Made Some Progress in Implementing Transformation, but Budget
Constraints and Staffing Challenges Could Continue to Impede Progress:
SBA Applied Some but Not Many Aspects of Practices and Implementation
Steps Important to Successful Transformation:
Conclusions:
Recommendations for Agency Action:
Agency Comments:
Objectives, Scope, and Methodology:
Appendix:
Appendix I: Comments from the Small Business Administration:
Table:
Table 1: Key Practices and Implementation Steps for Organizational
Transformations:
Figures Figures:
Figure 1: Timeline of Major Organizational and Operational Changes by
Fiscal Year:
Figure 2: Phoenix, Arizona, District Office Organizational Structure
"Before and After" Transformation:
Figure 3: SBA's Available Operating Funds Have Declined Since Fiscal
Year 2001:
Figure 4: Comparison of SBA's Fiscal Years 2003 and 2004 Budget Requests
for Transformation:
Abbreviations:
IRS: Internal Revenue Service:
SBA: Small Business Administration:
SCORE: Service Corps of Retired Executives:
Letter October 31, 2003:
The Honorable Olympia J. Snowe:
Chair, Committee on Small Business and Entrepreneurship:
United States Senate:
The Honorable Donald A. Manzullo:
Chairman, Committee on Small Business:
House of Representatives:
The Honorable Christopher S. Bond:
Member, Committee on Small Business and Entrepreneurship:
United States Senate:
Like many federal agencies, the Small Business Administration (SBA) has
recognized it needs to realign its current organizational structure and
processes. In doing so, SBA aims to improve its ability to fulfill its
primary mission--supporting the nation's small businesses and
protecting their interests--by increasing the public's awareness of
SBA's services and products and making its business and loan processes
more efficient. For over a decade, SBA has been centralizing some
functions of its many district offices to improve efficiency and has
been moving more toward partnering with outside entities such as
private sector lenders to provide direct services. SBA's district
offices were initially created to be the local delivery system for
SBA's programs, but as SBA has centralized functions and placed more
responsibilities on its lending partners, the district offices'
responsibilities have also changed. In a previous report, we found that
past realignment efforts during the 1990s had changed SBA's
organization but had also left parts of the previous structure intact,
contributing to complicated organizational relationships and a field
structure that was not consistently matched with mission
requirements.[Footnote 1] For example, we found confusion over the
mission of the district offices, with SBA headquarters officials
believing the district office's key customer was small businesses and
district office staff believing that their key customer was the lender
who makes the loans to small businesses.
SBA transformation efforts have not been a reaction to any change in
SBA's mission. Rather, SBA's intent has been to transform the agency so
that it can more effectively and efficiently achieve its mission. In
its current transformation effort, SBA intends to expand centralization
to additional loan functions and some of its other small business
programs to improve efficiency. As centralization frees up employees in
the district offices, SBA intends to better define the district office
role to focus on marketing and outreach to small businesses and
managing SBA's relationships with lenders and other resource
partners.[Footnote 2]
Following SBA's testimony in July 2002,[Footnote 3] which stated that
SBA was initiating a 5-year workforce transformation plan, you
requested that we (1) review SBA's progress in implementing its
transformation initiatives and discuss any challenges that have impeded
or could impede implementation and (2) determine whether SBA's
transformation incorporates practices that are important to successful
organizational change and effective human capital management in the
federal government. This report contains the results of our review of
SBA's implementation of the first phase--approximately 6 months--of the
transformation effort. As part of phase one, SBA planned to implement
pilot initiatives to test a new marketing focus for its district
offices and centralize some of its loan functions.
To conduct this review, we analyzed planning, budget, and
implementation documents related to SBA's transformation and
interviewed key officials at SBA headquarters. We also conducted site
visits at each of the pilot offices involved in the first phase--three
district office pilots in Phoenix, Arizona; Miami, Florida; and
Charlotte, North Carolina; and two center pilots in Santa Ana and
Sacramento, California. At these locations, we interviewed all
employees who were directly affected by the pilot. To ensure open
communication, we met with directors, supervisors, and employees
separately. We compared SBA's implementation process for transformation
with practices important to successful transformations, using practices
we identified in literature and our previous work on reorganizations,
organizational change, and human capital management.[Footnote 4] We
performed our review from February through September 2003 in accordance
with generally accepted government auditing standards.
Results in Brief:
SBA has made some progress in implementing the first phase of its
transformation, but further progress could be hampered by budget and
staff realignment challenges. To meet its objectives for phase one, SBA
(1) implemented a pilot initiative at three district offices to test a
new marketing focus and (2) centralized a number of loan functions from
these offices to two centers to assess ways to improve the efficiency
and consistency of its loan functions. SBA is currently nearing
completion of phase one, and to prepare for its new marketing focus, it
has provided marketing-related training to staff at the three district
offices and also conducted an analysis to identify staffs'
developmental needs in marketing. In addition, SBA transferred most of
the loan processing and liquidation cases from the three district
office pilots to the two centralization pilots. However, SBA officials
told us that they delayed the start-up of the district office and
centralization pilots in phase one due to the requirement in their
appropriations that they notify the appropriations committees prior to
going forward with any organizational restructuring, the government's
fiscal year 2003 continuing resolution, and a shrinking operating
budget. As of our report date, phase two has not yet begun; however,
SBA officials told us that plans for this phase have been scaled back
because the agency did not receive any of the funds specifically
requested for the transformation in its fiscal year 2003 budget, and
officials believe that SBA may not receive any requested transformation
funds in its fiscal year 2004 budget request. Thus, SBA would have to
rely on any available operating funds to carry out the transformation.
Given the current situation, officials said the focus is now on
creating a new center for centralizing all of its loan liquidation and
loan guaranty purchase activities. While SBA's implementation efforts
have been and could continue to be impeded by budget constraints, we
found that the agency's budget requests for transformation were
inconsistent and lacked a detailed plan that showed priorities and
linked resources to desired results. SBA's centralization efforts could
also be impeded by the challenge of realigning staff from multiple
field offices so that SBA can operate its central locations with
experienced employees.
When SBA initially planned and implemented its transformation it gave
some attention to practices important to successful organizational
transformation. However, over time SBA began to overlook key aspects of
these practices involving leadership, setting implementation goals and
a timeline, establishing an integrated mission and strategic goals,
using the performance management system, communication, and employee
involvement that are important to successful organizational change.
SBA's top leadership, the Administrator and Deputy Administrator, has
demonstrated support for the transformation. However, after SBA's Chief
Operating Officer left the agency shortly after initiating the pilots,
it was not evident to employees and stakeholders who was responsible
for implementing the transformation. Although SBA had developed a sound
draft transformation plan explaining the purpose, implementation goals
and a timeline, it did not make the draft plan public or provide the
reasons for upcoming steps. As a result, it appeared to many district
office employees and stakeholders that headquarters lacked a plan and
direction. In its fiscal year 2004 performance plan, SBA reported
strategic goals to guide the transformation, but it has not linked
transformation to existing performance goals or developed new goals
against which to measure its marketing and outreach efforts. In
addition, in the human capital area, although SBA has taken steps
toward creating a performance management system that would define
responsibility and set expectations for employees, it too is at risk
because the agency has not yet created a clear and defined linkage
between the employees' roles and the goals of the transformation. Also,
SBA has not established an effective strategy for communicating with
employees and stakeholders to engage them in the transformation
process, encourage two-way communication, and communicate early and
often to build trust. Many district office employees and stakeholders
told us that they generally heard about transformation-related actions
through rumors. Finally, district office employees and union officials
told us that they have not been actively involved in planning or
implementing the transformation.
This report includes recommendations to SBA's Administrator. To improve
implementation of its transformation, we are recommending that SBA (1)
ensure that implementation leadership is clearly identified to
employees and stakeholders, (2) finalize its draft transformation plan
and share it with employees and stakeholders, (3) develop and link
performance goals to its strategic goals, (4) use the new performance
management system to define responsibility, (5) develop a communication
strategy that promotes two-way communication, and (6) involve employees
and the union to solicit ideas and ensure that their concerns are
considered.
We obtained written comments on a draft of this report from SBA's Chief
Financial Officer. SBA's comments and our response are discussed near
the end of this report, and SBA's letter is reprinted in appendix I. In
commenting on the draft, SBA did not state whether it concurred with
our recommendations but said it would consider them as it continues to
plan for and implement its transformation efforts. SBA specifically
noted that it had already addressed recommendations related to
developing performance goals and using the performance management
system to define responsibility as a result of a new strategic plan
issued after the completion of our audit work and implementing its new
performance management system for employees on October 1, 2003. SBA
disagreed with our finding that its budget requests for transformation
were unclear. SBA also disagreed with our characterization of the
extent to which it had communicated with and involved employees.
Background:
In pursuing its mission of aiding small businesses, SBA provides small
businesses with access to credit, primarily by guaranteeing loans
through its 7(a) and other loan programs, and provides entrepreneurial
assistance through partnerships with private entities that offer small
business counseling and technical assistance. SBA also administers
various small business procurement programs, which are designed to
assist small and small disadvantaged businesses in obtaining federal
contracts and subcontracts. In addition, SBA makes loans to businesses
and individuals trying to recover from a disaster.
As figure 1 shows, SBA has experienced many organizational changes over
the past 20 years partly due to changing the way it delivers its
services and partly due to budget cuts. Perhaps the largest change to
SBA's service delivery has occurred in its lending programs, where the
agency went from making loans directly to guaranteeing loans made by
commercial lenders. SBA provides small businesses with access to
credit, primarily by guaranteeing loans through its 7(a) and 504
programs. For the 7(a) program, SBA can guarantee up to 85 percent of
the loan amount made by private lenders to small businesses. Within the
7(a) program, for smaller loans, SBA offers SBA Express as an option to
lenders who will use their own applications and underwriting procedures
by agreeing to a lower guaranty of 50 percent. Within the 7(a) program,
there are three classifications of lenders--regular, certified, and
preferred lenders--that illustrate the various range of
responsibilities handed over to lenders. SBA continues to provide final
approval of loans made by its regular lenders through the district
offices. Certified lenders have the authority to process, close,
service, and may liquidate SBA guaranteed loans, and SBA provides
expedited loan processing and servicing. Preferred lenders are given
full authority to make loans without prior SBA approval. However, these
lender-approved preferred loans are submitted to SBA's Sacramento
Processing Center, which, among other things, verifies that the lender
has documented eligibility requirements, issues a loan number, and
processes the loan guaranty. Under the 504 program, SBA provides its
guaranty through certified development companies--private nonprofit
corporations--that sell debentures that are fully guaranteed by SBA to
private investors and lend the proceeds to qualified small businesses
for acquiring real estate, machinery, and equipment, and for building
or improving facilities. When a 7(a) or 504 loan defaults, SBA reviews
the lender's request for SBA to purchase the guaranty, and if the
lender met SBA's program requirements, SBA pays the claim. SBA usually
relies on the lender to recover as much as it can by liquidating
collateral or SBA takes over the loan servicing and
liquidation.[Footnote 5]
Figure 1: Timeline of Major Organizational and Operational Changes by
Fiscal Year:
[See PDF for image]
[End of figure]
SBA's loan programs have also been the focus of a major organizational
change with the creation of centers to process and service the majority
of SBA's loans--work once handled largely by district office staff.
(See fig. 1.) About 92 percent of the processing and servicing of SBA-
guaranteed loans are handled in centers instead of district offices.
Among other things, these centers process the loan guaranty and review
servicing requests submitted by lenders and borrowers.
In response to budget reductions, SBA streamlined its field structure
during the 1990s, downsizing the 10 regional offices, moving the
workload to either district offices or headquarters offices, and
eliminating most of the regions' role as an intermediate management
layer between headquarters and the field. SBA created the Office of
Field Operations to take over the role of intermediary. SBA's overall
workforce has decreased by over 20 percent since 1992 and as of 2002
includes about 4,075 employees, including 956 for the Office of
Disaster Assistance and 102 employees for the Office of the Inspector
General.
When SBA embarked on this current transformation effort, it planned its
implementation in three phases. The key pilot initiatives SBA undertook
in phase 1 that began on March 10, 2003, focuses on (1) transforming
the role of the district office to focus on outreach to small
businesses about SBA's products and services and linking these
businesses to the appropriate resources, including lenders and (2)
centralizing its loan functions to improve efficiency and consistency
of its loan approval, servicing, and liquidation processes. Later
phases will include expanding these pilots to the remaining district
offices. As SBA proceeds in transforming the district offices and
centralizing many of its processes, it will analyze its business
processes to identify opportunities for improvement and reduce its
office space to achieve some cost savings. Finally, SBA's plan included
initiatives to apply technology and use the Internet to reach out to
more small businesses.
SBA Has Made Some Progress in Implementing Transformation, but Budget
Constraints and Staffing Challenges Could Continue to Impede Progress:
As part of the first phase of SBA's transformation, the agency began
implementing pilot initiatives to test a new marketing focus for its
district offices and centralizing some of its loan functions. As the
first phase nears completion, SBA has made some progress in
implementing the pilot initiatives at three district offices and two
centers. While SBA's implementation efforts have been and could
continue to be impeded by budget constraints, we found that the agency
did not always clearly communicate its budget requirements. SBA's
centralization efforts could also be impeded by the challenge of
realigning staff from multiple field offices so that it can operate its
central locations with experienced employees.
SBA Made Progress in Implementing Initial District Office and
Centralization Pilots:
SBA's purpose for transformation is to realign its organization,
operations, and workforce to better serve its small business customers.
Based on SBA transformation documents and agency officials, the agency
planned to approach its transformation in phases to allow it to test a
number of initiatives and to make refinements before implementing the
initiatives agencywide. In our July 2002 testimony on SBA's workforce
transformation plan, we noted that SBA had started to develop a sound
implementation plan for its transformation.[Footnote 6] As part of
phase one, SBA intended to test a new marketing and outreach initiative
for its district offices that would refocus their efforts on becoming
more responsible and accountable for promoting small business growth
and development as well as on providing better oversight and management
of its lenders and resource partners. Additionally, SBA planned to
centralize a number of the offices' loan functions to (1) free up
district office staff to reach and respond to the needs of local
businesses and to do more lender and partner management and oversight
and (2) improve the efficiency and consistency of its loan processing,
servicing, and liquidation functions. To accomplish these initiatives,
in March 2003, SBA began its initial pilot initiative at three district
offices and two centers and based on its initial transformation plan,
it expected to run the pilots for 6 months before moving to the second
phase of its transformation. As of our report date, SBA is nearing the
completion of phase one of its district office and centralization
pilots and plans to expand the results of phase one to all of its other
district offices. Based on our site visits to the pilot offices and
discussions with SBA headquarters officials, we identified a number of
transformation-related activities that SBA has made progress in since
implementing its initial pilot initiative. Specifically, for its
district office initiative to:
* prepare staff in carrying out their new marketing and outreach roles,
during March through June 2003, SBA provided training at the three
district office pilots on topics such as marketing and outreach,
presentation skills, and customer/partner relationships;
* develop the competencies necessary for staff to carry out their new
roles and to evaluate gaps in the existing skill sets of its staff, SBA
has hired a contractor to conduct a skills analysis. In July 2003, the
contractor completed the analysis for the three pilot district offices
and according to SBA officials, district office management will use the
results to identify its employees' developmental needs in the marketing
and outreach areas;
* update and clarify the specific duties that SBA expects its district
office staff to perform in their new marketing roles, the agency
developed new job descriptions for its marketing and outreach
specialist positions at the district office level; and:
* allow staff at the three pilot district offices more time to conduct
marketing and outreach functions, in March 2003, these offices had
stopped processing any new 7(a) liquidations and guaranty purchase
cases and 504 loan origination applications. In addition, the offices
had also transferred most of their outstanding 7(a) liquidation cases
to SBA's liquidation center in Santa Ana, California.
Additionally, a key component of SBA's transformation is to make
fundamental changes over the next 5 years at its district office level
to reflect the change in the agency's vision for its district offices
from making and servicing loans to primarily reaching out to new
markets and overseeing its private-sector partners. Based on our site
visits to the three pilot district offices, we found that the offices
have begun to move toward SBA's new vision for its district offices.
Specifically, SBA's Phoenix, Arizona, office has officially changed its
organization structure to allow its staff to focus mainly on marketing
and outreach-related activities. As shown in figure 2, the office has
replaced its portfolio management division with divisions for lender
development and marketing and outreach, and it also moved some staff
formerly in portfolio management to its business development division.
The Miami and Charlotte district pilots have also started to expand
their marketing and outreach efforts. For example, a Charlotte official
told us that it plans to use "SBA Days" as a way to reach out to small
businesses in its district. SBA Days are events conducted at local
chambers of commerce around the district's state where SBA staff along
with chamber members and other firms in the area conduct one-on-one
counseling sessions with business owners and potential entrepreneurs.
To reach small businesses in the Miami area, officials told us that the
office is using one of its resource partners to work with a national
chain of office supply stores to provide on-site counseling to small
business customers when they are in the stores.
SBA headquarters officials provided us with briefing slides that show
that the three district office pilots have submitted proposals for
establishing alternative customer service sites so that SBA employees
can provide direct customer service in areas outside the physical
location of the district offices. For example, the Phoenix district
office already has one marketing specialist located in Tucson and is
proposing two additional positions to support lender relations.
Officials also told us they are working with local governments and
resource partners to identify free office space for these new sites,
but in some cases there may be some rental expenses.
Figure 2: Phoenix, Arizona, District Office Organizational Structure
"Before and After" Transformation:
[See PDF for image]
[End of figure]
Finally, as part of its centralization initiative to improve the
efficiency and consistency of its loan approval, servicing, and
liquidation processes, in March 2003, SBA's two pilot centers assumed
their new roles and responsibilities. The liquidation center in Santa
Ana, California, began processing new 7(a) liquidations and guaranty
purchase cases from the three pilot district offices, and the loan
processing center in Sacramento, California started processing new 504
loan origination applications from these offices. In May 2003, the
Santa Ana center also started working on 1,275 outstanding 7(a)
liquidation cases from the three pilot district offices. Based on SBA's
benchmark reporting data for its centralization pilot, as of October
2003, the Santa Ana center had processed 185 of 227 new 7(a) guaranty
purchase cases it had received and closed 55 of 450 7(a) liquidation
cases. The Sacramento center had processed 582 new 504 applications
that it had received since beginning the pilot initiative.
According to SBA and representatives from two lender trade
associations, the centralization pilot has resulted in a more efficient
and consistent processing of SBA's 7(a) liquidation and guaranty
purchases and 504 loan approvals. SBA headquarters officials told us
that the agency would be able to perform these functions with far fewer
resources than it has to date. According to the officials, based on
results from a workload analysis SBA did of the Santa Ana
centralization initiative, it found that the 7(a) liquidation and
purchase guaranty process could be done by 40 employees in a center, as
opposed to the 266 employees that now process the cases in its district
offices. SBA officials also told us that centralization results in
faster processing times. SBA data indicate that the average turnaround
time for processing 7(a) guaranty purchases has decreased from 129 days
to 32 days and, for 504 applications, it has gone from about 14 days on
average to about 2 days. We reviewed about 450 cases of the 504
application approvals from the pilot and found that most applications
were processed and returned to the certified development companies in
about 2 days. We did not review data for any of the other measures.
When we visited the two centers participating in the pilots, center
officials showed us documentation they were using to make the process
more efficient and consistent. For example, for the 504 pilot, the
Sacramento center developed standardized letters to send to certified
development companies in situations where the center receives an
incomplete application package from a company. According to a center
official, some district offices spend a lot of time making telephone
calls to the development companies requesting the necessary data to
complete the processing. However, by using the letters, the official
said the center is saving time because it stops processing the
application until it receives the needed information, and in the
meantime it can continue processing applications that are complete. One
official representing certified development companies told us that the
companies participating in the pilot initiative for SBA's 504 program
are pleased with the results of the pilot. Officials representing 7(a)
lenders said that some lenders might not be in favor of centralization
because they have good working relationships with the local SBA
district office and would prefer to continue working directly with
them.
Budget Uncertainties and Constraints Affected Transformation, but SBA
Needs to Better Communicate Budget Requirements:
SBA transformation efforts have been impeded and could continue to be
impeded by budget uncertainties and constraints. SBA officials stated
that due to inflation and increases in employee compensation and
benefits, available operating funds had been declining since 2001 as
shown in figure 3. Therefore, SBA requested specific funding for its
transformation. According to SBA officials, the agency expected to
start its pilot initiative in July 2002 with funds from its 2002
operating budget and then expand the initiative in phase two of its
transformation, 6 months later, with funds specifically requested for
transformation in its 2003 budget. But SBA delayed the start of the
pilot until March 2003 due to a number of uncertainties about its
budget. SBA officials explained that language in its appropriations
bills requires that SBA notify the appropriations committees 15 days
prior to reprogramming its funds for relocating an office or employees,
or reorganizing offices.[Footnote 7] In the summer of 2002, SBA
notified the appropriations committees about its intent to go forward
with the pilots. However, SBA was told that it should first negotiate
with its union before moving forward. Although SBA reached agreement
with its union, starting the initiative still remained an issue for SBA
because, according to officials, it was too late to use 2002 operating
funds as it initially planned. While SBA then planned to use 2003
operating funds to start the pilot initiative, officials said that the
government's 2003 continuing resolution[Footnote 8] further delayed the
start because without an approved operating budget, SBA did not know
the portion of its operating budget that would be available for
transformation.
Figure 3: SBA's Available Operating Funds Have Declined Since Fiscal
Year 2001:
[See PDF for image]
[End of figure]
For its 2003 budget, Congress did not approve any of the $15 million
that SBA specifically requested for transformation activities planned
for phase two, and SBA officials told us they do not believe the agency
will receive any of the $21.1 million for transformation in its 2004
budget request. According to officials, SBA has had to change its
transformation plans and the level of funding associated with these
plans because of its shrinking operating budget and the lack of
specific appropriations for transformation. Specifically, officials
stated that SBA actually spent $96,000 in 2003 operating funds on the
first phase of its transformation for activities associated with its
pilot initiative, including shipping files, training, travel, and pilot
office evaluations. Officials could not tell us how much money SBA
initially planned to spend in phase one when it was going to use 2002
operating funds or whether any of the activities associated with this
phase had to be cut back due to the lack of funds. However, many
employees in the district offices we visited told us that they had not
received the level of funding needed to support marketing and outreach
functions including money for travel, laptops, and cell phones that
would allow them to cover a wider geographic area in the districts and
to test telecommuting and alternative work sites.
Although SBA struggled with budget uncertainties and constraints as it
began implementation of its transformation, SBA could have provided
better information about its budget requirements. Based on our analysis
of SBA budget request data for fiscal years 2003 and 2004, SBA has not
clearly defined its budgetary needs for transformation. As shown in
figure 4, the labeling of specific transformation initiatives varies
between SBA's fiscal years 2003 and 2004 Budget Request and Performance
Plans, making it difficult to compare and align its transformation
activities from year to year. Also, as shown in figure 4, in its fiscal
year 2004 budget request, SBA requested $21.1 million for a number of
investment initiatives, of which $8.8 million was for transformation.
The $8.8 million figure was also the amount cited by SBA's
Administrator during two congressional hearings.[Footnote 9] When we
met with SBA headquarters officials to discuss the variances in its
budget request data, the officials told us that SBA's 2004 budget
request for transformation is the entire $21.1 million, and not the
$8.8 million. In response to our questions about the budget data
inconsistencies, SBA officials attributed the differences to the
agency's changing environment. However, the inconsistencies we found in
SBA budget request data and the lack of a detailed plan make it
difficult for outsiders, including congressional stakeholders, to
understand the direction SBA wants to take with transformation and the
resources it needs to achieve results.
Figure 4: Comparison of SBA's Fiscal Years 2003 and 2004 Budget
Requests for Transformation:
Dollars in millions:
[See PDF for image]
Note: In SBA's fiscal year 2004 budget request for transformation, SBA
listed $2,000,000 for space restructuring. This amount should have been
$2,750,000, which SBA had listed in another location of the document.
[End of figure]
Staffing Challenges Could Impact Centralization Efforts:
To staff its centralization initiatives, SBA will have to relocate
employees from its 68 district offices scattered throughout the
country.[Footnote 10] Realigning staff from multiple field offices to
central locations is and will be an ongoing challenge for SBA.
Relocations could not only prove potentially disruptive for employees
but can also have an effect on SBA's operations by negatively impacting
morale and productivity. As part of phase one of its transformation,
SBA centralized a number of loan functions from the three pilot
district offices to two of its existing loan processing and servicing
centers. In phases two and three of its transformation, SBA had planned
to expand its centralization initiative until all of its loan functions
performed by its remaining 65 district offices were centralized. In
addition, SBA had planned to have fewer centers by consolidating some
of its existing ones.
Based on our discussions with SBA staff in the pilot offices, the
staffing of any centralization initiative with experienced staff could
be potentially challenging for SBA. Specifically, some staff believed
that the two pilot centers would not have a sufficient number of staff
to handle the increased workloads when SBA expands its centralization
initiative to include more district offices. According to one district
office employee, unless the two pilot centers or any other center have
enough staff with the right skill mix, they will be unable to
adequately respond to lenders, which the employee believed could
potentially affect relationships between SBA and the lending community.
One center official characterized the problem as fundamental because in
his view staff are not all equally adept and SBA is faced with matching
jobs with people who do not have the skills to do the work. An official
representing one of SBA's lender trade associations also expressed
concern that if SBA forced employees to move, that the centralization
initiatives will be staffed with employees with low morale that could
hurt productivity.
SBA's first attempt to realign staff with one of its centralization
initiatives was to establish a new 7(a) liquidation and guaranty
purchase center near Washington, D.C., beginning in early October 2003
and operate it with 40 liquidation staff relocated to the center from
its district offices. Based on SBA transformation documents, SBA plans
to relocate those staff with the greatest experience into the center to
take advantage of their expertise. According to SBA officials, to
identify experienced staff the agency used results from a cost
allocation survey that provided information on the amount of time
district office staff spend on loan liquidation functions. On September
10, 2003, SBA sent notification letters to certain district office
employees identified as having worked on liquidations, informing them
that they were eligible for a monetary buy-out if they separated from
federal service not later than September 30, 2003. While the letter
also states that the employee has 7 calendar days to accept the buy-out
offer, it is unclear how SBA would handle reassigning those staff who
do not accept the buy-out offer. Specifically, the letter does not
mention where staff are being assigned, or what relocation costs SBA
would pay.
According to the memorandum of understanding between SBA and its
employees' union signed September 9, 2003, the two parties agreed that
current district office staff at the GS-9 level and above who reported
spending at least 25 percent of their time performing liquidations on
SBA's most recent cost allocation study would be directly reassigned to
the new liquidation center in the Washington, D.C., metropolitan area,
or to one of the six most severely understaffed SBA district offices in
New York, New York; Newark, New Jersey; Atlanta, Georgia; Chicago,
Illinois; and San Francisco and Los Angeles, California. The memorandum
indicates that SBA identified the six offices based on staffing levels
for those district offices with the lowest ratio of SBA staff to small
businesses in their service area, as of August 1, 2003. Also, the
memorandum states that SBA plans to begin relocating staff 30 days from
the time it notifies them about their reassignment to the center and
that it will pay all of an employee's relocation cost in accordance
with the law. While SBA has indicated that it will make reassignments
as minimally disruptive for its employees as possible, depending on
where the 40 staff being reassigned to the center currently work,
logistical factors associated with moving, such as finding a new home,
could pose a challenge for these staff. As of our review date, SBA had
not informed us about when it expects to begin the reassignments or the
number of and office locations for the employees that it intends to
relocate.
SBA Applied Some but Not Many Aspects of Practices and Implementation
Steps Important to Successful Transformation:
We compared SBA's implementation process to practices that have been
identified in major private and public sector organizational
transformations as key for a successful transformation. Building on
lessons learned from the experiences of large private and public sector
organizations, these practices can help agencies successfully transform
their cultures so that they can be more results oriented, customer
focused, and collaborative. While SBA applied some key practices, such
as involving top leadership, dedicating an implementation team and
developing an implementation plan, it also overlooked key aspects that
emphasize transparency and communication. For example, although it
developed a draft transformation plan with implementation goals and a
timeline, it did not share the plan with employees and stakeholders.
SBA developed strategic goals for transformation but still needs to
link those goals with performance goals and its performance management
system. Finally, a lack of communication and employee involvement in
SBA's communication approach did not encourage two-way communication to
obtain feedback from employees and stakeholders and involve employees
to obtain their ideas and gain their ownership for the transformation.
Practices Important to Successful Transformation:
According to key transformation practices, people are at the center of
any change management initiative--people define the organization's
culture, drive its performance, and embody its knowledge base.
Experience shows that failure to adequately address--and often even
consider--a wide variety of people and cultural issues are at the heart
of unsuccessful transformations. Recognizing the "people" element in
these initiatives and implementing strategies to help individuals
maximize their full potential in the new organization, while
simultaneously managing the risk of reduced productivity and
effectiveness that often occurs as a result of the changes, is the key
to a successful transformation. Thus, transformations that incorporate
strategic human capital management approaches will help to sustain
agency efforts to improve efficiency, effectiveness, and accountability
in the federal government.
We convened a forum on September 24, 2002, to identify and discuss
useful practices and lessons learned from major private and public
sector mergers, acquisitions, and transformations.[Footnote 11] The
invited participants were a cross section of leaders who have had
experience managing large-scale organizational mergers, acquisitions,
and transformations, as well as academics and others who have studied
these efforts. The forum neither sought nor achieved consensus on all
of the issues identified through the discussion. Nevertheless, there
was general agreement on a number of key practices that have
consistently been found at the center of successful mergers,
acquisitions, and transformations. In a follow-up report issued on July
2, 2003, we identified specific implementation steps for these key
practices.[Footnote 12] These practices and implementation steps are
shown in table 1.
Table 1: Key Practices and Implementation Steps for Organizational
Transformations:
Practice: Ensure top leadership drives the transformation;
Implementation step: * Define and articulate a succinct and compelling
reason for change; * Balance continued delivery of services with
merger and transformation activities.
Practice: Establish a coherent mission and integrated strategic goals
to guide the transformation; Implementation step: * Adopt leading
practices for results-oriented strategic planning and reporting.
Practice: Focus on a key set of principles and priorities at the outset
of the transformation; Implementation step: * Embed core values in
every aspect of the organization to reinforce the new culture.
Practice: Set implementation goals and a timeline to build momentum and
show progress from day one; Implementation step: * Make public
implementation goals and timeline; * Seek and monitor employee
attitudes and take appropriate follow-up actions; * Identify cultural
features of merging organizations to increase understanding of former
work environments; * Attract and retain key talent; * Establish an
organizationwide knowledge and skills inventory to exchange knowledge
among merging organizations.
Practice: Dedicate an implementation team to manage the transformation
process; Implementation step: * Establish networks to support
implementation team; * Select high-performing team members.
Practice: Use the performance management system to define the
responsibility and assure accountability for change; Implementation
step: * Adopt leading practices to implement effective performance
management systems with adequate safeguards.
Practice: Establish a communication strategy to create shared
expectations and report related progress; Implementation step: *
Communicate early and often to build trust; * Ensure consistency of
message; * Encourage two-way communication; * Provide information to
meet specific needs of employees.
Practice: Involve employees to obtain their ideas and gain ownership
for the transformation; Implementation step: * Use employee teams; *
Involve employees in planning and sharing performance information; *
Incorporate employee feedback into new policies and procedures; *
Delegate authority to appropriate organizational levels.
Practice: Build a world-class organization; Implementation step: *
Adopt leading practices to build a world-class organization.
Source: GAO.
[End of table]
SBA Transformation Has Top Leadership Support and a Designated
Implementation Team, but Senior Officials' Roles Were Not Always
Transparent:
One of the key practices important to a successful transformation is
for the agency to ensure that top leadership drives the transformation.
SBA has followed this practice, with both the Administrator and the
Deputy Administrator demonstrating support for the transformation. The
SBA Administrator has provided a rationale behind the purpose of the
agency and the goals of the transformation by addressing district
directors and visiting field offices to discuss the importance and
goals of transformation--to increase awareness of SBA's services and to
make SBA a better trained, better equipped, and more efficient
organization. SBA officials told us that the Deputy Administrator has
also visited many field offices to discuss the transformation.
Designating a strong and stable implementation team that will be
responsible for the transformation's day-to-day management is also
important to ensuring that transformation receives the focused, full-
time attention needed to be sustained and successful. SBA has dedicated
an implementation team to manage the transformation process, but it has
experienced leadership changes that were not made apparent to employees
and stakeholders. The composition of the team is important because of
the visual sign it communicates regarding which organizational
components are dominant and subordinate or whether the transformation
team involves a team of equals. Prior to the Deputy Administrator
assuming the lead for implementing the transformation, the Chief
Operating Officer was responsible. The Chief Operating Officer, along
with SBA's Associate Administrator for the Office of Field Operations,
visited the pilot district offices during the kick off to promote the
transformation and to address questions and concerns of the pilot
district office staff. However, the Chief Operating Officer left SBA
shortly after the first pilot phase was initiated.[Footnote 13]
Similarly, the person who was initially the Associate Administrator for
the Office of Field Operations, who was responsible for overseeing the
district office pilots,was no longer involved in the transformation
shortly after implementation. SBA officials told us that it was not
productive for its Chief Operating Officer to be in charge of the
transformation because the Chief Operating Officer position was equal
in terms of authority to the other key positions on the implementation
team. Since the Chief Operating Officer left the agency, SBA has not
publicly designated a day-to-day manager for the transformation effort.
Based on our discussions with stakeholders and field and union
officials, the Counselor to the Administrator appeared to be the
manager. However, SBA has not issued any announcement or otherwise
clarified the leadership or implementation team to employees and
stakeholders. SBA officials told us that the person now serving as the
Associate Administrator for the Office of Field Operations leads the
weekly conference calls with the district and center directors involved
in the pilots and is the person most involved in the day-to-day
management of the transformation.
The Deputy Administrator, who can direct the other members of the
implementation team, leads the current team, which comprises senior
executives of the key program areas affected by the transformation such
as the Associate Deputy Administrator for Capital Access, the Associate
Administrator for the Office of Field Operations, Chief Human Capital
Officer, and the three pilot district office directors. The team also
includes the Counselor to the Administrator and two Regional
Administrators. Officials on the implementation team told us that they
meet on a weekly basis with the Deputy Administrator and sometimes the
Administrator to discuss the status and concerns related to the pilot's
implementation. SBA officials also emphasized that the implementation
team includes a mix of political appointees and senior career
officials. For example, the Associate Deputy Administrator for Capital
Access and the Associate Administrator for Office of Field Operations
are political appointees. The Chief Human Capital Officer and the
Counselor to the Administrator are career officials.
Lack of a Transparent Plan and Changing Focus Made SBA's Implementation
Goals and Progress Reports Confusing:
A key practice in organizational transformations is to set
implementation goals and a timeline to build momentum and show progress
from day one. Although SBA had developed a transformation plan that
contains goals, anticipated results, and an implementation strategy, it
never made the plan public. SBA headquarters officials told us that all
of its plans provided to us were "preliminary" documents because of
changes made to the plan; therefore, it had not been shared with
employees or stakeholders. Making the implementation goals and timeline
public is important for transparency and accountability in a
transformation and because employees and stakeholders are not only
concerned with what results are to be achieved, but also how to achieve
those results. According to SBA's draft transformation plan, SBA
intended to keep its employees apprised of the current status of
activities, and continuously inform its employees on what the agency
intended to do. However, SBA has not made much information available to
its employees and stakeholders regarding the details of upcoming steps,
measures for success, and reasons for decisions. As a result, it
appeared to many district office employees and stakeholders that
headquarters lacked a plan and direction. Stakeholders, including
representatives from lender trade associations, informed us that SBA
has not been forthcoming in discussing its transformation plans with
them. Generally, district office employees told us they thought SBA had
no clear plan and lacked direction. Specifically, two district office
employees told us that despite any planning that SBA had done for the
transformation, headquarters officials kept adding to the plan, and
changing goals during mid-year, which left employees in the district
office uncertain about what to expect.
SBA officials told us that internal and external factors, such as
budget uncertainties, caused SBA to alter aspects of the draft
transformation plan. Initially, phases two and three of its
transformation were to expand its district office and centralization
pilot initiatives to additional district offices. SBA had also planned
a number of other initiatives as part of the later phases, including
analyzing its business processes to identify opportunities for
improvement, restructuring its surety bond program, and expanding its
technology systems. According to a revised plan dated August 1, 2003,
and discussions with SBA officials, the focus of SBA's transformation
is now on creating a new center for centralizing all of its 7(a) loan
liquidation and loan guaranty cases. Also, the plan and other
documentation describing SBA's new centralization initiative indicate
that SBA's reason for the initiative is to allow it to correct staffing
imbalances at its district offices nationwide and will allow these
districts to increase the number of people in the field offices who are
providing direct assistance to small businesses, including providing
assistance in areas that have not had access to SBA services. While SBA
officials told us the focus of the transformation had changed, we had
difficulty in determining the extent of changes to the specific
initiatives in its initial transformation plan, including to what
extent SBA would test new marketing and outreach approaches, centralize
other functions, and improve business processes. According to a senior
SBA official, although there has not been a formal announcement about
creating the liquidation center, he expected that staff would be aware
that SBA was moving toward centralizing loan-related functions based on
the new marketing and outreach focus in the pilot district offices, and
because the union had been informed.
Similarly, although SBA planned for evaluating the progress of its
pilot initiatives, the SBA evaluations provided to us have been limited
to measuring the results of its centralization pilots and not the
results of the district office pilots or lessons learned from the
implementation process. As a result, employees and stakeholders are
uncertain about the results of the district office pilots. According to
key transformation practices, it is essential to establish and track
implementation goals to pinpoint performance shortfalls and suggest
midcourse corrections. According to SBA transformation documents and
officials, follow-up evaluations of its pilot initiatives were to take
place after kick off--every 90 days for the district office pilots and
every 30 days for the center pilots--to evaluate the progress of the
pilots, and to monitor and validate the information SBA received. In
addition, these reviews were intended to identify any problems related
to the transformation process, as well as best practices, which would
be documented and shared with the others in the pilot to improve
efficiency and effectiveness. For its centralization initiative, SBA
has established some evaluation standards--such as measuring average
turnaround and processing time for the centers, and has generated a
benchmark report reflecting the results of these measures. While SBA
gathered benchmark measurements to monitor progress in the district
office pilots as part of its quality service reviews conducted in
January 2003, SBA did not provide an evaluation of the results of SBA's
district office initiative. As of our report date, it is unclear to us
whether SBA has completed or begun district office evaluations. SBA
officials told us that they are working on developing a way to evaluate
the impact of the district office pilots and to link their marketing
and outreach focus with their existing performance goals, such as loan
volume, so that they would have a road map on lessons learned to use
when adding more district offices to the pilot.
SBA Has Developed Strategic Goals for Its Transformation, but Needs to
Link Performance Goals to Its Marketing and Outreach Focus:
Establishing a coherent mission and integrated strategic goals is
another key practice in organizational transformations. Although SBA
has developed strategic goals to guide its transformation and included
these goals in its fiscal year 2004 performance plan, SBA has not
linked them with measurable performance goals that demonstrate the
success of the agency's expanded focus on marketing and outreach.
According to the Government Performance and Results Act, agencies are
required to develop annual performance plans that use performance
measurement to reinforce the connection between the long-term strategic
goals outlined in their strategic plans and the day-to-day activities
of their staff, and include performance indicators that will be used to
measure performance and how the performance information will be
verified. District office employees we interviewed generally indicated
an understanding of the strategic goals and the purpose of the
transformation, and had a sense of what the transformation intends to
accomplish. However, some district office employees told us that they
did not know what the measures would be for determining whether the new
marketing and outreach focus was successful, while others told us that
they were unclear on how the district office staff should conduct
marketing and outreach. SBA officials told us that the agency was still
struggling with how to link its marketing and outreach focus with its
existing performance goals, such as number of loans made by lending
partners.
SBA currently uses quantitative measures, such as the number of jobs
created, number of loans made, and dollar volume of loans to determine
how well it is achieving its strategic goals. SBA officials told us
that SBA uses an Execution Scorecard, which is an Intranet-based
system, as the internal management tool to track data on each district
offices' performance goals, for monthly progress reviews with the
Deputy Administrator on key initiatives, including transformation.
According to an SBA official, the scorecard shows that the loan volume
in two of the three pilot district offices has increased more than in
nonpilot district offices when compared to last year's volume. However,
we identified other factors that could have contributed to an increase
in loan volume. For instance, the policy changes made to its SBA
Express program, which allows the lender to use its own documentation
and applications, also most likely contributed to an increase in loan
volume. In fact, other district offices not in the pilot have also seen
an increase in loan volume. As a result, the scorecard may be limited
in measuring success that could be directly attributed to the pilot
efforts for marketing and outreach.
Lack of Clear Performance Goals Puts New Performance Management System
At Risk:
Using the performance management system to define responsibility and
assure accountability for change is a key practice in organizational
transformations. SBA has taken steps toward creating a performance
management system that would define responsibility and set expectations
for the individuals' role in the transformed SBA. However, since SBA is
still struggling with how to define measurable outcomes for the new
marketing and outreach focus, its performance management system may
also send a confusing or ambiguous message to employees. We previously
reported that as agencies continued to shift towards a greater focus on
results, they would need to make progress connecting employee
performance with agency success.[Footnote 14] An explicit alignment of
daily activities with broader results helps individuals see the
connection between their daily activities and organizational goals.
According to SBA headquarters officials, SBA's performance management
system, modeled after IBM's, would focus more on results and not on
activity. SBA officials told us that SBA implemented its performance
management system for senior executives and supervisory staff in fiscal
year 2003. SBA is implementing the system for its nonsupervisory staff
beginning in fiscal year 2004. SBA officials provided us with
documentation of the new position descriptions for the marketing and
outreach positions that explained the duties and expectations. However,
at the time of our review SBA was still developing the performance
standards and had not yet implemented them for nonsupervisory staff.
SBA recognized that it would need to provide training to help employees
make the transition from their former areas of expertise to a new,
broader, and in some respects, more complex job.
It was unclear what the linkage will be between these new job
responsibilities, performance standards, agency performance goals, and
the strategic goals for the transformation. District office employees
who have been conducting new marketing and outreach activities told us
that they were not sure how their performance will be measured because
they have not received information on their performance management
standards, and are unclear as to how their job responsibilities would
change, or how they would be rated. Specifically, one district office
employee told us that it was easy to measure loan specialist
performance prior to the pilot because the standards were clear and
concise--he knew from his own self-assessment where his performance
stood--and that under the new performance management system, it will be
harder to measure results because they are not tangible. In addition,
another district office employee told us that although many employees
see benefits to the transformation, they do not know how SBA will
measure its progress toward reaching more of the public since employees
do not understand what exactly they need to accomplish, such as number
of clients the staff should contact or how many marketing events staff
should attend, to help SBA reach its goals.
Communication Strategy Is Limited:
While establishing a communication strategy is a key practice in
organizational transformations, SBA has not established an effective
and on-going communication strategy that would allow the agency to
create shared expectations and report related progress to its employees
and stakeholders. Organizations implementing transformations have
found that communicating information early and often helps build an
understanding of the purpose of planned changes and builds trust among
employees and stakeholders. In particular, SBA does not have an
effective communication strategy that reaches out to its employees and
stakeholders to engage them in the transformation process, encourages
two-way communication, and communicates early and often to build trust.
A comprehensive communication strategy that reaches out to employees
and stakeholders and seeks to genuinely engage them in the
transformation process is essential to implementing a transformation.
SBA officials acknowledged that it was important for headquarters to
communicate and address staffs' concerns. However, when we reviewed
SBA's current methods of communication and asked employees in the pilot
offices how they received information, we determined that communication
is one-way and through a chain of command model, newsletters, or
rumors. Communication is not about just "pushing the message out," but
also involves facilitating an honest two-way exchange and allows for
feedback from employees and stakeholders. SBA officials told us that
SBA headquarters disseminated information to the employees through the
regional administrators and the district directors--and a newsletter--
The SBA Times. District office employees told us that they generally
hear about transformation-related events either through their district
director or their immediate supervisor, while other employees stated
that they get most of their information through rumors. In addition,
stakeholders also told us that they initially hear information through
rumors. For instance, a representative from a lender association
informed us that they get information through rumors because SBA did
not provide any information about the transformation to them. As we
noted in an earlier report, it is important for stakeholders to be
involved because it helps to ensure that resources are targeted at the
highest priorities, and it creates a basic understanding among the
stakeholders of the competing demands that confront most agencies, such
as the limited resources available.[Footnote 15]
It is also important to consider and use employee feedback and make any
appropriate changes to the implementation of a transformation.
According to union officials, SBA had set up an e-mail address in June
2002 to which employees could send their questions regarding the
transformation. However, despite staff submitting questions, the
district office staff told us they have yet to see a list of the
questions or SBA's responses. According to SBA officials, these emails
were provided to senior management officials to respond to questions in
conference calls held with field staff. The draft transformation plan
we reviewed included a set of questions and answers about the
transformation, but they were never made public. SBA officials told us
that because all the transformation plans were preliminary, SBA has not
drafted a thorough list of questions and answers and therefore had not
made them available to employees.
SBA did not communicate sufficiently with its employees. The
information on the transformation initiative found in SBA's monthly
newsletters from June 2002 through March 2003 reported on the status of
the transformation effort, described the purpose of transformation,
announced when the pilots began, and described them. We reviewed all of
the newsletters issued after the kick off of the pilots in March 2003,
to see what kind of information was provided to SBA employees. With one
exception, the newsletters had no information about the transformation
or the creation of the new 7(a) Liquidation and Purchase Guaranty
Center and SBA's intention to reassign staff from overstaffed district
offices to understaffed offices. The topic related to transformation
included in one issue was a brief reference to the district office
pilot in Phoenix. None of the newsletters mentioned who would replace
two people who had been key leaders in the transformation--the Chief
Operating Officer who left the agency or the Associate Administrator
for Office of Field Operations who had moved to a different position
within SBA. SBA officials told us that no one has filled the position
of the Chief Operating Officer and the replacement for the Associate
Administrator for Office of Field Operations was announced in an
agencywide e-mail. However, as we stated earlier, after the Chief
Operating Officer left the agency, SBA had not clarified who was
leading the implementation team for transformation.
Transformation Has Not Adequately Involved Employees:
Involving employees from the beginning to obtain their ideas and gain
ownership of the transformation is important to successful
transformations. It strengthens the process by including frontline
perspectives and experiences. In addition, a study conducted by the
National Academy of Public Administration indicates that agencies that
have effectively restructured have also worked with their unions to
implement changes.[Footnote 16] The Academy reported that when Congress
mandated in 1998 that the Internal Revenue Service (IRS) restructure,
IRS management worked with the National Treasury Employees Union to
implement benchmarks and develop alternatives. As a result of this
collaboration, according to the Academy, IRS facilitated the process of
moving employees into new jobs and made the transition easier. Although
SBA officials told us that SBA has involved its union, the American
Federation of Government Employees, and signed memorandums of
understanding with the union on implementation of the pilot and on
establishing a liquidation center, union officials told us that they
had very little involvement. A union representative told us that SBA
does not involve them in any of the planning and only includes the
union after it has decided what it wants to accomplish. In addition,
another union representative told us that since signing the memorandum
of understanding for the first pilot phase in October 2002, SBA has not
included the union in aspects of the transformation, such as creating
SBA's competency models, or following up on training courses. SBA made
a presentation to the union in July 2003 regarding the second phase of
the pilot--to create a new liquidation center in the Washington, D.C.,
metropolitan area--prior to signing the second memorandum of
understanding but did not give the union an opportunity for input on
planning for the second phase. In September 2003, SBA and the union
signed a memorandum of understanding on the creation of the new center
in which SBA agreed to offer an early retirement for all agency
personnel and a buyout option to those employees who performed the
liquidation function.
SBA's transformation has not involved employees in the planning or
implementation stages. During our field visits, we found that because
SBA has not actively involved its employees in the transformation
process, there is often anxiety and apprehension, as well as low morale
in the pilot district offices. However, based on our field visit, we
observed that the Arizona District Office's former Portfolio Management
Team appeared to be less anxious about the transformation than
Portfolio Management teams in the other district office pilots, mostly
because the team leader and her staff were involved early in the
transformation by preparing the loan files for the Santa Ana 7(a)
center, and training the center staff. We found that because of this
early involvement, they had a better sense of their role and were more
optimistic about the transformation. An SBA headquarters official told
us that SBA intends to use its employee feedback from training
evaluations to modify its training curriculum for the next pilot phase,
but we were unable to identify any other examples where employee
opinions and perspectives were sought. During our field visits to the
pilot offices, we found that the employees had valuable input on
lessons learned and on ways that SBA could improve its implementation
process. For example, one employee suggested that SBA create a
guidebook for its employees on what to expect from the transformation,
and that the three district office pilots be a resource for the
guidebook. In addition, one district office employee suggested that SBA
change the order of the training curriculum so that the course on
results management is offered first to help supervisors communicate
with their staff regarding the transformation. We also observed that
employees generally were not opposed to the transformation and saw
benefits resulting from the transformation; however, a few employees
expressed frustration with the way the process was implemented. If
employees had a larger role in implementing and planning the
transformation, such as through employee teams, they could help to
facilitate the process by sharing their knowledge and expertise,
particularly those employees who have had experience in the marketing
and outreach area.
Conclusions:
SBA has made some progress in implementing its transformation plan for
phase one. However, continued success and progress in implementing its
transformation may be impeded by budget uncertainties and constraints
and the difficulties in realigning employees to staff centralization
efforts. To some extent, SBA has compounded the budget challenge by not
sharing its plan with a key stakeholder--Congress--and not providing
clear, consistent budget requests with a detailed plan that show
priorities and link resources to desired results. In addition, as SBA
moves forward in centralizing its loan and other functions, realigning
staff will likely present additional challenges, such as problems with
employee morale and productivity.
Transforming an organization is not an easy endeavor. It requires a
comprehensive, strategic approach that takes leadership, time, and
commitment. Although SBA may achieve progress in the short-term by
establishing new centers to improve some of its business processes, its
long-term success in defining and institutionalizing a new role for its
district offices will take more time and commitment. The practices we
have identified as being important to successful transformation are
especially important as SBA moves forward with its transformation and
could also help mitigate the challenges it faces with its budget and
staff realignment. However, the weaknesses we identified in SBA's
implementation process could derail or negatively impact its
transformation effort as the agency attempts to expand transformation
and affect more of its operations and employees. SBA's leadership
changes, plans, and rationales for decisions have not been made public
and therefore have created an environment of confusion about the
leadership, specific goals, and timeline for transformation. SBA is in
the infant stages of developing a link between its broad strategic
objectives and measurable performance goals, which will be important
for determining the success of transformation. The lack of frequent and
two-way communication has exacerbated an environment of confusion, even
though many employees understand the goals of transformation. Finally,
SBA is missing out on one of its key strengths--its employees--by not
adequately involving employees in the transformation process. This lack
of employee involvement means that SBA does not receive information and
perspectives that could improve and facilitate the transformation and
promote employee buy-in.
Recommendations for Agency Action:
In order to improve and build on transformation efforts under way at
SBA, we recommend that the Administrator adopt key practices that have
helped other organizations succeed in transforming their organizations.
Based on our review of SBA's initial implementation of phase one of its
transformation, we specifically recommend that the Administrator:
* Clarify for employees, congressional, and other stakeholders the
leadership and implementation team members who are guiding
transformation.
* Finalize the draft transformation plan that clearly states SBA's
strategic goals for transformation and includes implementation goals,
timeline, and resource requirements, and share the plan with
stakeholders and employees.
* Develop performance goals that reflect the strategic goals for
transformation and more clearly link the strategic goals of
transformation to existing performance goals. In addition, develop
budget requests that clearly link resource needs to achieving these
strategic and performance goals.
* Ensure that the new performance management system is clearly linked
to well-defined goals to help individuals see the connection of their
daily activities and organizational goals and encourage individuals to
focus on their roles and responsibilities to help achieve those goals.
* Develop a communication strategy that facilitates and promotes
frequent and two-way communication between senior managers and
employees and between the agency and its stakeholders, such as Congress
and SBA's lenders. For example, SBA could electronically post
frequently asked questions and answers on its Intranet.
* Facilitate employees' involvement by soliciting ideas and feedback
from its union and staff, ensuring that their concerns and ideas are
considered. For example, SBA could develop employee teams and expand
employee feedback mechanisms like those it employed in the pilot
training.
Agency Comments:
We received written comments on a draft of this report from SBA's Chief
Financial Officer, which are reprinted in appendix I. In commenting on
the draft, SBA did not state whether it concurred with our
recommendations but said it would consider them as it continues to plan
for and implement its transformation efforts. SBA specifically noted
that it had already addressed recommendations regarding developing
performance goals and using the performance management system to define
responsibility as a result of issuing a new strategic plan with revised
performance goals and implementing its new performance management
system for employees on October 1, 2003. SBA provided us with a draft
strategic plan but then told us that the plan was being revised
significantly and that we should wait until the revised plan was
completed. Since this revised strategic plan was issued after we had
completed our work, we did not have time to determine whether SBA had
sufficiently addressed our recommendations related to linking its
transformation efforts to strategic and performance goals and
performance expectations for employees. Therefore, these
recommendations will remain in the report, and we will determine
whether SBA has implemented the recommendations as part of our
recommendation follow-up process.
SBA disagreed with our finding that its budget requests for
transformation were unclear. SBA stated that it clearly lays out its
funding requests for transformation in the Fiscal Year 2003 and Fiscal
Year 2004 Budget Request and Performance Plans. We used these documents
to review SBA's budget requests for transformation and as the source
for our analysis shown in figure 4 of the report. In its comments, SBA
said that it had made changes to its budget format in fiscal year 2004
to bring it more in line with the requirements of the Results Act by
integrating budget with performance goals. We clarified some language
in the final report to better reflect the issues we identified with
SBA's transformation budget requests. While the fiscal year 2004 budget
request may have at some level integrated its budget request with
performance goals for its programs, it did not make clear linkages
between its request for transformation funds and its performance goals.
The budget requests for transformation were not consistent in terms of
amounts requested or stated purposes nor were they accompanied by a
detailed plan that showed priorities and linked resources to desired
transformation results. Therefore, we still maintain that SBA could
improve its transformation budget request presentation to better ensure
that it links the request to transformation performance goals and
outcomes.
SBA also disagreed with our findings related to communication and
employee involvement. SBA stated that officials have traveled to the
pilot district offices to explain the agency's transformation plans and
solicited comments from district directors in a May 2002 district
director conference. However, our draft report did not state that
management was not involved or was uninformed, but that employees below
the district director level in the pilot offices were not sufficiently
involved and informed. Furthermore, SBA cites its efforts to
communicate prior to the implementation of the pilots, which we recited
in our draft report, but employees told us that their level of
involvement and the amount of information they received was lacking
after the pilot began. In its comments, SBA also stated that it
conducts weekly telephone calls with the pilot district directors who
in turn have regular meetings with their employees. Our draft report
acknowledged SBA's use of conference calls with the district directors
and the expectation that directors would then have meetings with their
employees. However, we also found that notwithstanding communications
with district directors, district office employees remained confused
and lacked avenues for two-way communication with headquarters about
the transformation. SBA also stated that it has worked with its union
to gain agreement through memorandums of understanding for different
parts of the plan, and these efforts were reflected in our draft
report. However, in more than one discussion with us, union officials
expressed concerns that SBA had approached them after having already
decided what it was going to do and had not adequately informed the
union about new initiatives or changes to the plan. We continue to
maintain that SBA's transformation efforts could benefit from improved
communication and employee involvement.
SBA also provided technical corrections, which we incorporated as
appropriate in this report.
Objectives, Scope, and Methodology:
In preparing this report, we focused on the district office and
centralization pilots of phase one of SBA's transformation effort
because (1) they were initiatives that had begun at about the same time
we began our review and, therefore, we could observe the implementation
process and (2) these pilot initiatives, if expanded, would impact all
68 SBA district offices.
To determine SBA's progress in implementing its transformation effort
and challenges that have or could impede progress, we analyzed
planning, budget, and implementation documents related to SBA's
transformation and interviewed key officials at SBA headquarters
involved in the transformation planning and implementation processes.
We also conducted site visits at each of the pilot offices involved in
the first phase--three district office pilots in Phoenix, Arizona;
Miami, Florida; and Charlotte, North Carolina; and two center pilots in
Santa Ana and Sacramento, California. At the center locations, we
reviewed documents that were developed to make the process more
efficient and consistent (for example, checklists and standardized
letters). We also reviewed measures that SBA is using to assess the
centralization pilots. From data SBA headquarters uses to track the
pilots, we reviewed about 450 approvals for the 504 loan program pilot
and calculated an average total response and processing time using the
dates that were included in the data. At each of the pilot locations,
we interviewed all employees who were directly affected by the pilot--
in the case of the district offices, we met with virtually all
employees.[Footnote 17] To ensure open communication, we met with
directors, supervisors, and employees separately. We asked them to
describe how their office, role, and job had changed; how information
was communicated to them about transformation; and whether they had
been provided training and resources to transition into new roles. We
also asked them to identify the top five or fewer challenges and
benefits of transformation and lessons learned from the initial
implementation process.
To assess whether SBA applied practices that are important to
organizational change and human capital management in the federal
government, we reviewed the literature and our previous work on
reorganizations, organizational change, and human capital management to
identify key practices that have been recognized as contributing to
successful organizational transformation. The main document we relied
on in identifying key practices was our recent report Results Oriented
Cultures: Implementation Steps to Assist Mergers and Organizational
Transformations.[Footnote 18] We used these criteria as a basis to
assess SBA's planning process for transformation, implementation
process for the pilots for phase one, leadership of the transformation,
communication with employees and key stakeholders, and level of
employee involvement. When interviewing SBA employees for objective
one, we also asked questions to determine their understanding of the
transformation effort and how they received information and
communicated their questions or concerns. In addition to talking with
employees involved in the pilots, we also interviewed representatives
of SBA's union and asked the extent to which they were involved in the
transformation process. To obtain feedback from SBA stakeholders, we
interviewed officials representing the National Association of
Government Guaranteed Lenders and the National Association of
Development Companies, whose members include SBA 7(a) lenders and
certified development companies that make 504 loans, respectively. We
also met with SBA's congressional stakeholders who expressed views
about their role in SBA's transformation process.
We conducted our work in Washington, D.C; Phoenix, Arizona; Sacramento
and Santa Ana, California; Miami, Florida; and Charlotte, North
Carolina, between February and September 2003, in accordance with
generally accepted government auditing standards.
:
Unless you publicly announce its contents earlier, we plan no further
distribution until 30 days after the date of this report. At that time,
we will send copies of the report to the Ranking Minority Member of the
Senate Committee on Small Business and Entrepreneurship, the Ranking
Minority Member of the House Committee on Small Business, other
interested congressional committees, the Administrator of the Small
Business Administration, and the Director of the Office of Management
and Budget. We will make copies available to others on request. This
report will also be available at no charge on the GAO Web site at
http:/www.gao.gov.
Signed by:
Please contact me at (202) 512-8678, [Hyperlink, dagostinod@gao.gov]
dagostinod@gao.gov or Katie Harris at (202) 512-8415, [Hyperlink,
harrism@gao.gov] harrism@gao.gov if you or your staff have any
questions. Major contributors to this report were Patty Hsieh, Kay
Kuhlman, and Rose Schuville.
Signed by:
Davi M. D'Agostino:
Director, Financial Markets and Community Investment:
[End of section]
Appendixes:
Appendix I: Comments from the Small Business Administration:
U.S. SMALL BUSINESS ADMINISTRATION WASHINGTON, DC 20416:
Ms. Davi M. D'Agostino Director:
Financial Markets and Community Investment:
U.S. General Accounting Office:
Washington, DC 20548:
Dear Ms. D'Agostino:
Thank you for the opportunity to comment on your draft report "Small
Business Administration: Progress Made But Transformation Could Benefit
From Practices Emphasizing Transparency and Communication" (GAO-04-
76). SBA will take into consideration your recommendations as it
continues to plan for and execute its transformation efforts.
SBA's transformation has three major objectives to assist in fulfilling
the Agency's mission: increasing the number of people in our field
offices who are directly assisting small businesses, reducing the cost
of SBA operations not directly related to assisting small businesses,
and ensuring that key positions in all field offices are filled with
capable professionals. As has been reflected in discussions with your
staff, SBA must act now to address the imbalances in its workforce. The
Agency is doing this through establishing alternate work sites within
districts, centralizing or eliminating "back room operations," and more
effectively managing its workforce so SBA staff can directly interact
with the community more frequently. These changes will not adversely
affect our products and services, but will allow us to better meet the
needs of our clients.
After reviewing your draft report, SBA has several comments on the
document and the recommendations you have put forward. SBA's workforce
transformation plan, as initially presented to GAO and Congress in a
July 2002 hearing, was an initial draft. This draft was based on
findings by GAO, SBA's Inspector General and SBA's own internal audits.
As you correctly stated in the draft report, the purpose of
transformation is to make SBA a cost effective and cost efficient
organization that successfully fulfills its mission. To accomplish this
SBA is reengineering its processes and realigning its personnel and
making maximum use of technology within the restraints of budgetary
realities and Congressional mandates. By necessity, SBA's
transformation plan needs to be flexible. The plan and subsequent
timetable have continually been revised due to changing financial
situations and Congressional intervention as well as analyzing what
worked and didn't work in the pilots.
SBA disagrees with your assessment that it did not provide clear budget
requests for transformation. In both SBA's FY 2003 and FY 2004 Budget
Request and Performance Plan, the Agency clearly lays out its funding
request for efforts under the transformation umbrella. SBA did change
its budget format in FY 2004 to bring it more in line with the
requirements of GPRA by integrating its budget with performance goals.
This relates to SBA's most recent strategic
plan, released earlier this month, which we regret was released too
late for your review. The new plan further integrates SBA's performance
measures with outcomes and strategic goals, allowing a clear line of
sight between all measures. SBA feels this strategic plan addresses
your expressed belief that the goals of transformation are not directly
tied to performance goals or SBA's strategic goals. SBA feels the new
plan also better ties budgets to performance, addressing your concerns
mentioned above.
SBA disagrees that it did not benefit from employee perspectives or
attempt to gain employee support. SBA officials traveled to pilot
district offices to explain on the Agency's plans for transformation,
and as you note later in the report, SBA employees in the pilots
expressed more support for the change. Also, senior Agency officials
have been addressing the field staff since 2002 on transformation
efforts and solicited comments on the Agency's well being in May 2002
during its district director's conference. In addition, SBA conducts
weekly phone calls with the pilot district directors which include the
Administrator or Deputy Administrator, the senior officials in
headquarters involved with transformation, as well as the district
directors and regional administrators of the pilot offices to
communicate any changes, problems, and successes. District directors,
in turn, have regular meetings with their employees. Comments and
results are used in tailoring the plan to the varied districts' needs.
To the extent practicable and beyond the requirements in the union
contract, SBA has worked with its union to gain MOU agreements in going
forward with different parts of the plan. Finally, SBA is expanding its
efforts to keep its Congressional overseers informed of the progress
and plans of transformation.
SBA believes it has already addressed draft recommendations 3 and 4
through the development of SBA's new strategic plan and the
implementation of its new performance measurement system for its
employees. The new performance system went into effect in October 2002
for supervisors and members of the SES and on October 1, 2003 for all
remaining employees. SBA also believes that the opportunity is
available for employees to raise their concerns to management through
their district directors or immediate supervisor. SBA's senior
management did engage district directors in the conferences it has had
over the past 2 years on the transformation issue. These events have
been, and will continue to be, open forums for district directors to
express their ideas. It is also worth noting that the expansion of
phase one of transformation will be to over 20 volunteer district
offices.
Attached you will find some specific comments that SBA feels will
enhance the accuracy of your report. Thank you for taking our views
into consideration.
Sincerely,
Signed by:
Thomas Dumaresq:
Chief Financial Officer:
Attachment:
(250119):
FOOTNOTES
[1] U.S. General Accounting Office, Small Business Administration:
Current Structure Presents Challenges for Service Delivery, GAO-02-17
(Washington, D.C.: Oct. 26, 2001).
[2] SBA's resource partners include organizations such as Small
Business Development Centers and Women's Business Centers that provide
management and technical assistance and the Service Corps of Retired
Executives (SCORE) chapters in which volunteer business executives
counsel small businesses and potential entrepreneurs.
[3] House Committee on Small Business, Subcommittee on Workforce,
Empowerment, and Government Programs, Maximizing Organization and
Leadership in a Federal Agency to Fulfill Its Statutory Mission:
Restructuring of the Small Business Administration, 107TH Cong., 2ND
sess., 2002.
[4] The main document we relied on in identifying key practices was our
recent report, U.S. General Accounting Office, Results Oriented
Cultures: Implementation Steps to Assist Mergers and Organizational
Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003).
[5] Liquidation is the act of enforcing collection on a debt that has
defaulted by selling underlying securities that the borrower has
pledged as collateral. If collateral proceeds are insufficient to cover
the outstanding balance, lenders may pursue personal guarantees or
obligations provided by business owners or others in support of the
loan.
[6] U.S. General Accounting Office, Small Business Administration:
Workforce Transformation Plan Is Evolving, GAO-02-931T (Washington,
D.C.: July 16, 2002).
[7] Consolidated Appropriations Resolution FY 2003, (H.J. Res. 2) Pub.
L. 108-7, Div. B, Title VI, § 605 (2003).
[8] If Congress has not enacted an annual appropriations for an agency
by the beginning of a fiscal year the agency must begin an orderly
shutdown of most of its activities and operations due to the funding
gap, unless Congress passes a continuing resolution. A continuing
resolution is a temporary appropriations authorizing an agency to incur
obligations during an interim period at a fixed rate until Congress
enacts the annual appropriations for the agency.
[9] During his statements on June 4 and February 26, 2003, regarding
SBA's fiscal year 2004 budget request, before the Senate Committee on
Small Business & Entrepreneurship and the House Committee on Small
Business, SBA's Administrator, Hector V. Barreto, indicated that its
budget request included $8.8 million for its transformation effort in
fiscal year 2004.
[10] Prior to February 2003, SBA had 70 district offices. In February
2003, SBA notified Congress of its intent to designate two of its
district offices--Spokane, Washington; and Cedar Rapids, Iowa--as
branch offices and this change was formally made in September 2003.
[11] U.S. General Accounting Office, Highlights of a GAO Forum: Mergers
and Transformation: Lessons Learned for a Department of Homeland
Security and Other Federal Agencies, GAO-03-293SP (Washington, D.C.:
Nov. 14, 2002).
[12] U.S. General Accounting Office, Results-Oriented Cultures:
Implementation Steps to Assist Mergers and Organizational
Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003).
[13] This position was still vacant as of October 23, 2003.
[14] U.S. General Accounting Office, Managing for Results: Emerging
Benefits from Selected Agencies' Use of Performance Agreements, GAO-01-
115 (Washington, D.C.: Oct. 30, 2000).
[15] U.S. General Accounting Office, Executive Guide: Effectively
Implementing the Government Performance and Results Act, GAO/GGD-96-118
(Washington, D.C.: June 1996).
[16] National Academy of Public Administration, Equal Employment
Opportunity Commission: Organizing for the Future (February 2003). This
report also includes the Academy's observations on the IRS
restructuring.
[17] For employees that were not available at the time of our visits,
we followed up through telephone calls, in most cases.
[18] GAO-03-669, July 2003.
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